Is the Market in a State of Euphoria, or Is it Delusional? 2/5/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. The unstoppable stocks, two of the biggest names in big tech, getting even bigger this year. And they're helping the so-called MAG7 cement their leadership in the market. But does the rally have legs? We'll debate that. Plus, healthy return. Shares of Eli Lilly surging nearly 6 % ahead of its earnings tomorrow. Will the results deliver another shot to the arm of this red-hot pharma stock? Or has it come too far too fast? And later, a cosmic move for a cosmetics company.

0:32Geopolitical tensions weigh on a fast food giant. And a media mogul confirms his interest in Paramount. The headlines behind all these moves are coming up. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Dan Nathan, Guy Adami, and Kristen Bitterly, head of investments at Citi Global Wealth. Welcome, Kristen. On a day when the major averages close in the red, we start off with what seems to be unbridled euphoria in a handful of names. Take a look at shares of NVIDIA surging almost 5 % today. The chipmaker stock is up 40 % already this year, adding over half a trillion dollars in market cap in that time.

1:06Meta also on a hot streak. The Facebook parent jumping almost 15 percent in the past five sessions, even with today's losing day. The social media giant gained nearly 200 billion dollars in market cap just on Friday after a blowout earnings report. So what do you make of this euphoria or what seems like it, Guy? Well, it's pretty remarkable. Goldman Sachs, I think, reiterated their buy in NVIDIA,$800 price target conviction buy list. Today it traded one and a half times normal volume. Clearly the money flows are there. The AMD quarter last Tuesday, I think it was, when they reported, I didn't think it was particularly good.

1:40I thought the guidance was weak. It's right back where it was, if not higher than before. Microsoft, the same thing. I mean, the money flows were amazing. So congratulations if you've been involved. I have not clearly, and I'm still not necessarily a believer. But you have to wonder, at what point does something trigger this thing? I mean, the story can't, I don't think, last forever. and double ordering, triple ordering, margins compression is more people get into the space, more competition. I don't know. We're getting close. For NVIDIA specifically. I think so. But haven't we learned from the hyperscaler earnings just in the past week or so that there is demand for these GPs?

2:13I mean, doesn't that confirm this NVIDIA bull story? I think it does. And February 21st, we're going to hear a lot more. And, you know, for a stock that's done 40 percent when the entire semi space today set new relative highs to the S &P and new all time closing highs, I believe. And that to me is the dynamic. The question is, how crazy is it if you can throw$25 a share in EPS on NVIDIA by 2025? Suddenly, this stock's not as expensive as it seems, given the growth it's giving you. Meta, the reason it got so many upgrades is not just because they did a div, even though I think that was an exciting thing for some types of investors, money managers that want the dividend.

2:51But a CAGR of anywhere from 20 % to 25 % over the next three years is what most of those research analysts that were upgrading the stock said. So is it crazy? I think it's like semis are up 50 percent or so since October 26th when the market inflated. 50 percent for the biggest, highest growth group in the bunch. And so, yeah, it's shocking. It's startling. But again, the companies that are really the ones outperforming. And again, there hasn't been good breadth. It's been, you know, it's been all those top seven names. You texted me an FT story, which was titled Sell NVIDIA. Yeah. So I sort of know where you stand here.

3:27Well, no, it was a pretty fascinating note. And so there was a fixed income analyst over at Barclays and again named Sandy Gupta. And he's obviously relatively constructive on the story and the secular move and all the things that are going on in and around that underweights the stock, though. Again, it's not the equity analyst over there, but really laid out the potential for all these things that Guy just mentioned, whether it be competition, whether it be margin compression, whether it mean this this movement from the training level of a lot of the companies that are buying these GPUs to the inference level, which will be less data dependent or intensive and the like.

4:03I mean, the list goes on and on the competition and this. Here's the deal. Coming into this year. OK, the stock looked cheap, right? It had grown into those kind of numbers that had been ratcheted up quarter over quarter all of 2023. after a 45 % gain just in the last month, it's no longer cheap. So when they report on February 21st, if they do report a deceleration by any means, this stock's going down. So when you talk about what's unnatural about this, I mean, to me, when you go up literally three quarters of a trillion dollars in a straight line without any news. Now, there's a massive customer concentration.

4:36Meta and Microsoft, they reported last week. Without any news? Hold on. I need to stop you a little bit. Without any news? I mean, again, a company whose business doubled and is projected to possibly triple. Well, that was last year's news. So basically, okay, so two customers, Meta and Microsoft, are 30 % of their revenue, and they just had really great quarters. Microsoft didn't react well to its own quarter, right? So you can say that, like, for instance, that's in the stock, that's in NVIDIA's stock. Meta had that 20 % gap or so. And so I just think when you have that sort of customer concentration, you have to go back 20-some years to the Internet, you know, sort of thing.

5:09There was another thing that my good friend Jim Chanos, who we spoke to last week down at the conference, he mentioned that, you know, the company NVIDIA, and it's detailed in this article also and in this Barclays note, that they've made like two dozen VC investments in the NVIDIA space where those companies, they take the capital and then they're using, they're buying the GPUs and the GPUs are serving as collateral for the capital. And we saw that at the turn of the century, right? So this is not going to end particularly well. You can't go up three quarters of a trillion dollars in a straight line on not much news, Tim, not much company specific news and not think that it has the potential to go the other way just as violently.

5:47How do you read all these data points out there? I think we have to bring it all back to earnings. And we've seen this in the breakdown of The Magnificent Seven as well, where you're you basically have these stories where they are priced for perfection. So any type of news that would be negative going into earnings if they don't deliver, you could expect some downside exposure. And I think as long as some of these companies continue to deliver what is spectacular earnings growth, there's going to be continued funds that come into it. And you're going to see investors almost hide out in some of those stocks.

6:16The same thing that we saw last year. But hiding out in a stock like it's almost paradoxical, counterintuitive, ironic to say you're going to hide out in a stock like NVIDIA. You're going to hide out in a stock like well, maybe you're going to save your job by owning NVIDIA. I mean, that's something that a lot of a lot of fund managers are going to make sure that they you know, that they have this on their balance sheet at quarter end. Because, again, I say this all the time, but you don't get fired on the way down. Typically, you get fired for missing the move on the way up. And that the move in tech has been so violent, especially in terms of semis.

6:50And I don't think that the price action has been sane. But I do think there's a lot of things going on, including a new paradigm, a new spend, a new addressable market,$8 trillion of cash. A lot of people that thought the market was going not going higher. A lot of people that didn't expect that payroll number in the environment we have. Even if you have slower growth, where else do you pile in? You pile into mega cap tech. It's been defensive forever. That's what we got. And that's your point to all the money parked in money market funds. It's got to come in at some point. It has to come in. But I also think the interesting thing about mega cap tech is it's decoupled from what you would normally think about from a rates perspective.

7:29So when we saw rates come down, you actually saw a broadening out of the market. That was the story in November, December. Now that we've seen volatility in rates again, money went back into these companies and they caught even a higher bid. So what was the news story? Rates continues to drive a lot of this. Yeah, we'll talk about rates, I'm sure. But up 13 basis points today in the 10 year, up to 416. And in terms of, again, history, I guess it doesn't matter. But right now, giving NVIDIA... But it rhymes. But a given NVIDIA... I don't know what that means. Give NVIDIA$100 billion in revenues next year, and I'm rounding up.

7:59It's trading 17 times revenue, which is historically a pretty premium multiple, probably twice what the industry typically trades at. So I guess the question is, does it matter at this point, or will it grow into it? And those are the questions that need to be answered. Yeah, and all that talk about the market broadening out and how great that was for this bull market. For five minutes. It didn't last long. Look at how poorly the Russell 2000. The Russell 2000 is smaller in its totality than Apple or Microsoft individually. Look at on a day like today, stocks like Air Products got absolutely destroyed.

8:31This is a chemical company. Do you see Alcoa down nearly 9 percent? So there's lots of sectors in the market that just act really poorly. I don't know if you saw the auto stocks. I mean, like I could go on and on. There's plenty of groups that you might think about dollar cost averaging or thinking about getting on the other side of this hiking cycle and what it might look like, right, when we kind of normalize rates and, you know, we get the economy in the spot where the Fed wanted to get it to and inflation is manageable and all that sort of stuff. The geopolitical stuff is less of a concern, that sort of thing.

8:59But you don't have a choice right now because the point that you guys are making, hiding out in those names, those are the names that are going to crash the market. If there's a reason to sell the stocks, like we saw, you know, remember Google a week ago after its earnings was trading down 7 % until the rest of the things got back on their horse? We lost Tesla, okay? So if you start losing these things fundamentally one by one, don't think for a second, February 22nd, the day after NVIDIA reports, that stock could not be down 15 percent or something like that. I know that you guys think that sounds crazy.

9:29No, no, no, no. But do the math on that. Moving NVIDIA to the downside doesn't sound crazy. I think there's plenty of arguments that are going to be able to support at least the short term on the valuation, even at the next couple of years. Competition. Look, I'm not smart enough to know what's going on with everybody else in terms of just what I've heard from AMD and Intel. Right now, six to 12 month lead on NVIDIA. But I agree with you. And again, I look at the RSP or the equal. That's the ETF that tracks the equal weighted S &P. We made two year relative lows today. So for everyone that's looking for me, this market, the broader market, the industrialized market that's supposed to benefit so much from AI actually has been selling off precipitously for the last year.

10:09and had a little breath of fresh air in November on a weaker CPI and a PPI, actually, that November 13th. That was kind of a trigger. It got small caps going. And I don't think you have to own small caps. I have a question, and I'll pose it to Chris. You know, when you take a look at the disparate performance in terms of the, you know, outperformance of mega caps versus, you know, the other sectors doing terribly, are we not pricing a soft landing? You see a soft landing. Are we pricing that? Because if we are pricing that in, we should have the participation of the other groups in anticipation of that soft landing.

10:38or the soft landing that we are currently experiencing? Yeah, so I think over the past week, basically, this goes back to Chair Powell and all of his signaling to the market. The market got ahead of itself in terms of pricing and a cut in March. Our base case was always that the first cut was going to be in May or June, just because the growth, the data that we have and just the sheer facts around growth is strong, the employment backdrop is strong. So March was always going to be a little early for the Fed to be in a position to cut. So that pricing out of May and June, if we believe that Fed funds is at a peak, if we believe that the trajectory is lower in rates, if we believe that inflation is going down that trajectory to about two and a half percent by year end, then that's good for the broadening out story.

11:25When and where it happens, we're going to need more visibility into the Fed's trajectory, though. Timing is everything, though. That's the tricky part. The yields, the move in the bond market guy rightly talks about volatility. And you've had essentially a V-shape in the long-end yields over the last week. What was it? It was crazy that on the day Powell spoke and effectively was more hawkish than the market had expected and the things that Chris is talking about in terms of pushing back rate cuts. But it's as if the market believed the Fed was going to push the market, was going to essentially keep their foot on the neck of the market that much longer and push us into recession.

12:01It was a move in the long end that actually didn't make sense. And that's the recovery we've seen. See, it's interesting. I mean, the bond market is clearly confused because when you go from 382 a week and a half ago to 416 today on essentially just a lot of rhetoric. I mean, the bond market's struggling to figure it out as well. I'm, I think, one of the few people that think rates can continue to go higher because I do think the inflationary pressures are going to start to reaccelerate. Now, I don't think that's particularly bullish for stocks. But quite frankly, nothing's been bearish for stocks now for quite some time.

12:32Let's turn now to an earnings alert on NXP Semi. Shares are higher after posting earnings and revenue beat guidance, though, was mixed. BBC Steve Kovacs got the details. Steve. Hey there, Mel. Yeah, the beat on top and bottom line. Setting shares up about 2.5 % or a little bit better than that. It was up as much as 4 % earlier. But guidance, a little bit mixed here. Midpoint of the EPS range, slightly higher than estimates of$3.15 a share. But revenue for estimates of slightly below, sorry, of estimates of$3.2 billion. And some optimism here from CEO Kurt Sievers in the earnings release saying, quote, we are navigating a soft landing by managing what is in our control, especially limiting overshipment of products to customers.

13:13Supply was a big problem for many chip companies the last year or so. And look, take a look at some of the segments here, mostly beating expectations. Automotive revenue came in at$1.9 billion. That was a beat. Industrial and Internet of Things,$662 million. Another beat. Mobile,$406 million. A really hefty beat there. And communication infrastructure, that was the only miss there at$455 million in sales. Look, earnings call is going to be tomorrow at 8 a.m. Eastern, so expect some more color there. But for now, I see shares up 2.7 percent there, Mel. Steve, thanks. Steve Kovach. And we've heard a drumbeat of companies supplying to the same end markets.

13:50worries about the inventory, overbuilding in terms of the inventory. And here we are. And XP seems to have navigated this. Great. But this is one of the least you can get your arms around in terms of valuation. Probably trades, I don't know, 16 times next year's numbers-ish. You got decent earnings growth, not ridiculous. And in terms of price to revenue, we just talked about NVIDIA at 17 times. This is probably closer to 5, which, again, I'm not saying NVIDIA should trade 5, but 17 is a little stretched. Apples and oranges, yeah. I mean, this stock has not been NVIDIA. I mean, this stock's done nothing for two years at a time when semis have gone through the roof.

14:22So it's down year to date. You know, the argument is this is like one of these overly commoditized chip names that I think people, you know, see as cyclical, frankly, whereas the other ones are no longer cyclical. They're growth. But do you want an apple or do you want an orange? I mean, in this environment, if you think it's awfully. I mean, but all the list that Chris had ticked off in terms of rates going down, inflation range above, check, check, check. If you believe those things, do you want to be in a company that's more cyclical? I don't. So, again, if my Apple is call it my Nvidia, my orange is my NXPI.

14:56Either way, I'd be taking a bite out of the Apple only because, again, I think one, I think right now the cycle we're in for that business, the addressable market is that we continue to go higher. I hate it, but NXPI, I'd be taking NXPI if I thought my orange, no, my apple was rotten. It was like a Granny or like a Granny Smith because a guy hates Granny Smith. No, no, no. Delicious. No, they're not. They're tart. Those are the green ones. Yes. This was a Fast Money First, by the way. This is Would You Rather, the fruit edition. No, that's what it is. It's not successful. I don't think this is a green one.

15:33It's not going well. We've had better metaphors than those. But I think we could bring something else into the mix. Instead of just picking apples and oranges, and I won't continue the fruit metaphor here, but I think this is where the equipment makers are actually an area that you could expand into. So if you think of the inventory overhang, some of the concerns, and then not having to choose between where there's clear total addressable market growth and then something that's maybe a little out of fashion, we know that that is a necessity in terms of this growth. and they've been a little underloved on a relative basis.

16:07All right, so she picks a kind of orange, maybe a tangerine. A banana. Or a tangelo. Remember tangelo's? Of course I remember. How about clementines? You never get a bad clementine, ever. Delicious. Kumquat? Excuse me? Bitter. Well, it's a tiny, tiny orange. More bruises for Boeing. Shares getting hit again today as more issues with the 737 MAX come to light. Details on the latest findings and what the FAA can do about it at this point. Plus, no concealing the gains in Estee Lauder. Shares surging on the back of this morning's earnings report. The changes they're making that have investors jumping in.

16:40Don't go anywhere. Fast Money's back in two. This is Fast Money with Melissa Lee right here on CNBC.

16:54Welcome back to Fast Money. Boeing finishing down more than a percent after saying improperly drilled holes in some of its 737 max fuselages could delay the delivery of 50 aircraft. The faulty holes initially discovered by supplier Spirit Air Systems, whose stock fell almost 5%. Phil Abbeau joins us now with the very latest. Phil. And Melissa, we'll find out just the extent of this latest issue over the next couple of days, because they're going to do inspections of these 50 aircraft, determine whether or not rework has to be done. And if there is rework where the holes were misdrilled, well, then they'll bring them into conformance, and that may delay some delivery.

17:30So just again, to recap what's happened over the weekend, a worker at Spirit Aerosystems in Wichita, Kansas said, look, I think a couple of these holes on these fuselages may have been drilled incorrectly. So they're going to check them again. About 50 undelivered aircraft are impacted here. There's another 40 that are in service. It's not a flight safety issue. So they'll continue in service and do inspections and check them at some point. Near-term deliveries could be impacted. Remember, Boeing delivered 387 737 MAXs last year, and their production is capped right now. The question becomes, when will they be able to move it up from 38 per month?

18:07Remember, the FAA has said, you can't go any higher until we're comfortable that you have your house in order. And who knows when that may be? A couple of months, a couple of quarters remains to be seen. The target of 50 per month in 25 and 26, that is Boeing's own guidance. They did not pull that guidance when they reported their Q4 results last week. So that's a target that is out there, though Boeing is saying, look, we're not officially endorsing that as where we expect to be in 2526. But it certainly is out there. As you take a look at shares of Spirit Aerosystems, remember, Q4 results will come tomorrow.

18:43The conference call is what people want to focus on because that's when new CEO Pat Shanahan. And yes, he came in at the start of the fourth quarter. But this is really the first quarter where they'll have a chance, analysts will have a chance to ask him about where Spirit is at. And more importantly, the changes that he's putting in place in order to bring them up to the level of performance where they need to be. Because we've seen a number of these issues time and again with Spirit that has ultimately resulted in Boeing having to do rework or inspections and slowing down deliveries. Melissa, don't forget, tomorrow morning on Squawk Box, you don't want to miss our exclusive interview with Michael Whitaker, FAA administrator.

19:22Remember, they're doing an investigation of Boeing right now, and they are also adding inspectors at Spirit Aerosystems. So lots to discuss with Mr. Whitaker. That's a Squawk Box exclusive, 7 o 'clock tomorrow morning. Melissa? Won't miss it. Won't miss it. Phil, thank you. You bet. Phil LeBeau. I think the question here really is, when will defects be the anomaly, sort of the, you know, aberration as opposed to the norm? because even if it's not a matter of flight safety at this point, it's further damage to the reputation. It's the further drumbeat of bad news surrounding their execution capabilities.

19:53No question. It's not quality control. It's quality out of control. I think that was one of the notes I read this morning from Wolf. And you get to a place where you can do the math in terms of what this means. February deliveries look like they're going to be a lot like January's. I'm still of the view that this is a company that's going to do$8 billion in free cash flow, and you put a 10 times multiple on that part of their business and, you know, you have an 18, excuse me, an 18 times multiple on that free cash flow that I actually think Boeing's starting to get really attractive. I think it's in the price.

20:22I realize that doesn't assess the ability of major buyers and an order book to be changed. But I'm not so sure how it can be. So it's horrifying what's going on. But right now, the numbers to me tell you that a lot of this is in the price. Yeah, it's 200 filled a gap to the downside. I mean, now the news seeming, I don't want to say it's the same news, but it's seemingly a reiteration. This is more minor than the last. Totally. I mean, this is a whistleblower. Now you're going to get, you know, an ashtray was in the wrong spot, to your point. But it's all fair. I mean, they should actually point these things out.

20:53With that said, I mean, it's only going to, their defense portion of their business is viewed as almost a nondescript asset right now in terms of what they're doing to the stock. So if you can tolerate some more of these headlines, I think Boeing is OK here. All right. There's a lot more Fast Money to come. Here's what's coming up next. Making Up Ground. Shares of Estee Lauder eyeing their best day in nearly four years. The details out of the bronzer bump next. Plus, we've got a lily look ahead coming your way. What to expect when the pharma giant delivers results tomorrow and if the weight loss drug craze can keep fueling the gains.

21:31You're watching Fast Money live from the NASDAQ market side in Times Square. We're back right after this.

21:45Welcome back to Fast Money. Estee Lauder topping the tape after reporting its latest round of results this morning. That stocked up 12 % for its best day in more than four years. While both sales and profit declined in the latest quarter, the company announced plans to cut up to 5 % of its workforce. And of course, everybody will know that Estee Lauder is the E in Tim Seymour's acronym, for 2024, which is BICEP. Thank you. Well, I mean, I don't know if everybody, but certainly most people know this. And part of this was a story that when you are involved in the acronym game on Fast Money, I think your goal is to win and play by the rules, which not everybody did, but also to find, to me, things that are bombed out.